FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

-Refer to Figure 10- 4.The average per unit profit earned by this profit- maximizing single- price monopolist is

Question

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.
 
-Refer to Figure 10- 4.The average per unit profit earned by this profit- maximizing single- price monopolist is

Quizplus · Accepted Answer

The monopolist maximizes profit by producing the quantity where marginal revenue equals marginal cost, which occurs at Q2 in the diagram. The monopolist charges the highest price possible for that quantity, which is P4. 
The monopolist's total cost at the profit-maximizing quantity is shown by the area of the rectangle with sides Q2 and AC, which equals (P4-P2) x Q2. 
The monopolist's total revenue at the profit-maximizing quantity is shown by the area of the rectangle with sides Q2 and BD, which equals (P4-P0) x Q2. 
Therefore, the monopolist's total profit at the profit-maximizing quantity is (P4-P2) x Q2 - (P4-P0) x Q2 = (P0-P2) x Q2. 
The monopolist's average per unit profit is this total profit divided by the quantity produced, which is (P0 - P2). Therefore, the answer is E, P4 - P2.

FIGURE 10- 4 Suppose a Monopolist Faces the Demand Curve